State Farm Mutual Automobile Insurance Company v. Sama Baradaran, 2018 ONFSCDRS 116

Financial Services Commission of Ontario

Neutral Citation: 2018 ONFSCDRS 116 Appeal: P17-00036 Office of the Director of Arbitrations

State Farm Mutual Automobile Insurance Company Appellant

and

Sama Baradaran Respondent

Before: David Evans

Representatives: Timothy Crljenica for State Farm Mutual Automobile Insurance Company Manoucher Baradaran, Form P representative for Sama Baradaran

Hearing Date: February 15, 2018

Appeal Order

Under section 283 of the Insurance Act, R.S.O. 1990 c. I.8 as it read immediately before being amended by Schedule 3 to the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, and Regulation 664, R.R.O. 1990, as amended, it is ordered that:

1. The appeal of the Arbitrator’s order dated May 17, 2017 is allowed. Paragraph 2 thereof is rescinded and replaced with the following:

   2. State Farm may seek repayment of attendant care benefits paid, as set out in issue 4 of the pre-hearing letter dated May 15, 2015.

2. The Arbitrator’s expenses order dated August 30, 2017 is rescinded.

3. The matter is returned to arbitration for determination of Ms. Baradaran’s liability to repay attendant care benefits and pay State Farm’s arbitration expenses.

4. If the parties are unable to agree about expenses of this appeal, they may arrange an expense hearing in accordance with Rule 79 of the Dispute Resolution Practice Code.

June 15, 2018

David Evans Director’s Delegate

Date

Reasons for Decision

I. Nature of the Appeal

In her decision dated May 17, 2017, Arbitrator Muzzi allowed Ms. Baradaran to withdraw her accident benefit claims including attendant care benefits (ACBs). However, she precluded State Farm from pursuing its claim for repayment of ACBs, despite repayment being an issue listed in the pre-hearing letter. The Arbitrator found that, as all issues had been withdrawn, there was no application for arbitration before the Commission, and State Farm could not commence one.

Subsequently, in an expenses decision dated August 30, 2017, the Arbitrator denied State Farm its expenses of the arbitration hearing.

State Farm appeals on the basis that it had the right to a determination of its issues, regardless of the withdrawal of those of Ms. Baradaran.

I agree. Both the Insurance Act and the Rules of the Dispute Resolution Practice Code allow an insurer to add issues to the arbitration process and to have those determined by an arbitrator, notwithstanding the withdrawal of an insured’s issues. Since State Farm had not withdrawn its issues, I allow the appeal.

II. Background

Ms. Sama Baradaran, a minor, suffered injuries in a motor vehicle accident on May 30, 2012. She applied to State Farm for accident benefits pursuant to the SABS–2010.¹ State Farm adjusted the claim and paid $12,000 in ACBs.

After disputes arose, Ms. Baradaran filed for arbitration. Arbitrator Feldman, in his pre-hearing letter dated May 15, 2015, added repayment of the $12,000 as an issue in dispute:

4. Is Ms. Baradaran liable to repay to State Farm $12,000.00 that she received from State Farm in attendant care benefits (for the period from June 1, 2012 through September 30, 2012)?

Note: State Farm is basing this claim for repayment upon material misrepresentations allegedly made by Manoucher Baradaran, acting on behalf of the Applicant.

Further, issue 6 was Ms. Baradaran’s liability to pay State Farm its arbitration expenses.

On March 11, 2016, Arbitrator Feldman wrote to Mr. Baradaran, who had failed to find legal representation for his daughter Sama, that he, Mr. Baradaran, was in a potential conflict position because he would be both a witness regarding the alleged misrepresentation and a representative.

Arbitrator Muzzi set out what happened at the hearing on page 2 of her May 17, 2017 decision:

On the first scheduled day of the arbitration, Mr. Baradaran, the applicant’s father and Form P representative, sought permission to withdraw all of the disputes included in the applicant’s pending arbitration application without prejudice until such time as she reaches the age of majority. While initially opposed to the request, State Farm eventually relented and agreed that the request be granted. However, State Farm urged that it be permitted nonetheless to pursue its allegation of a material misrepresentation in respect of Sama‘s attendant care benefits claim. [Emphasis added.]

The Arbitrator noted that Rule 70.2 of the Dispute Resolution Practice Code provides that “An adjudicator may permit a party to withdraw all or part of a dispute where all parties agree.”

The Arbitrator permitted the withdrawal on page 3:

Given State Farm’s agreement that Sama be permitted to withdraw her arbitration disputes, I see no reason to deny the request. Sama is currently a minor and is not represented by counsel at these proceedings. Mr. Baradaran expressed an inability to properly represent her interests. In these circumstances, permitting a withdrawal of the disputes until such time as she reaches the age of majority allows her the opportunity decide how best to proceed with the issues.

However, State Farm‘s request to pursue repayment was denied on page 4:

I find that State Farm is precluded at this point from pursuing the allegations of material misrepresentation in respect of Sama’s attendant care claim. State Farm’s allegations of material misrepresentation are related to its request for repayment of the attendant care benefits already paid to Sama and are inextricably linked to one of the issues in Sama’s application for arbitration. With all of the issues in that application now having been withdrawn, there is no application before the Commission. I can find no provision in the Schedule or the Insurance Act that allows an insurer to bring its own application for arbitration. Section 281(1) of the Act is clear that only an insured person may refer a matter to an arbitrator under section 282, i.e., to the Commission.

In her subsequent arbitration expenses decision of August 30, 2017, the Arbitrator found that State Farm was not entitled to its expenses as the unsuccessful party.

III. Analysis

I will not deal with Ms. Baradaran’s submissions at any length, as they are either improper or irrelevant. For instance, Ms. Baradaran improperly includes in her submissions various “without prejudice” discussions.

Ms. Baradaran submits that estoppel applies, but even if that issue were relevant, she provided no evidence making out the elements of estoppel.

Ms. Baradaran submits that the order was interim and not appealable, but it was final.

Ms. Baradaran submits that State Farm’s request for repayment is frivolous, vexatious or commenced in bad faith. That finding can only follow a determination of the merits of the claim, and since there has been no such determination, there is also no res judicata, and the alleged facts underlying the repayment request are irrelevant on appeal.

State Farm submits that the Arbitrator erred in precluding the ACB repayment issue, as s. 282(3) of the Insurance Act (as it read prior to April 1, 2016) required the Arbitrator to determine all issues in dispute raised before her, including State Farm’s:

282(3) The arbitrator shall determine all issues in dispute, whether the issues are raised by the insured person or the insurer. [Emphasis added.]

State Farm submits that the intention of the Legislature in creating s. 282(3) was to allow insurers to pursue the repayment request through arbitration once a claimant commenced the arbitration process.

I agree. In Ali and Aviva Canada Inc., (FSCO A11-000783, May 11, 2012), Arbitrator Wilson similarly dealt with a withdrawal of an insured’s claims after a repayment issue was added at a pre-hearing. As he stated, even if the insured purports to withdraw all her issues from arbitration, the arbitration continues until the arbitrator has dealt with all issues, including those raised by the insurer.

The Rules in the Code reflect s. 282(3). With respect to adding issues, Rule 27.1(b) requires an insurer to include in its Response by Insurer “a description of any additional issues that the insurer wishes to have arbitrated…” State Farm’s amended Schedule “A” to the Response by Insurer set out in detail its additional issue, namely the allegation of misrepresentation.

With respect to the pre-hearing discussion, Rule 33.1(a) provides that the pre-hearing arbitrator will assist the parties to prepare for the arbitration by “identifying and obtaining agreement as to the issues for arbitration.” The pre-hearing arbitrator included the repayment issue as issue 4 in the pre-hearing letter. The repayment issue was therefore properly before Arbitrator Muzzi.

Finally, Rule 37.8 sets out the Arbitrator’s duty: “The arbitrator will determine all issues in dispute and such other issues as the parties may agree, where mediation has taken place.” State Farm’s repayment issue was among those issues in dispute and was not withdrawn.

The Arbitrator therefore erred when she stated that all issues in dispute had been withdrawn. Only one party had requested the withdrawal of her issues. State Farm never requested a withdrawal of its issues and specifically requested there be a determination of its issues.

The Arbitrator also erred in stating that State Farm was trying to bring its own arbitration proceeding. Rather, State Farm had properly added its issue to the proceeding commenced by Ms. Baradaran. State Farm was therefore entitled to have a determination of its dispute, regardless of the withdrawal of Ms. Baradaran’s issues.

Therefore, I allow the appeal. It follows that I rescind the expenses decision because State Farm is now the successful party.

The matter is returned to arbitration for determination of the remaining issues in dispute, namely Ms. Baradaran’s liability to repay the ACBs and pay State Farm’s arbitration expenses.

IV. Expenses

If the parties are unable to agree about expenses of this appeal, they may arrange an expense hearing in accordance with Rule 79 of the Dispute Resolution Practice Code.

June 15, 2018

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Effective September 1, 2010, Ontario Regulation 34/10, as amended.